Pandemic Damages Estimation:
The coronavirus outbreak has resulted in massive disruption of the world economy, promptly and expectedly mirrored in the financial markets. The 2020 economic damage is dire: the world’s output has decreased by 4%, YoY, translating into roughly 4 trillion U.S. dollars of lost economic output.
As always, economic “Black Swan” effects primarily translate into excess volatility of the financial markets which concurrently points to both substantial short-term trading opportunities, as well as to the need for calculated long-term patience.
IG Bank’s analysis of the COVID impact on financial markets indicates points to an earlier and faster dynamic in comparison to previous shocks. COVID effects didn’t take long to escalate from mild mid-February 2020 symptoms to “Black Monday” on March 9, 2020, a day which recorded the biggest market drop since 2007-2009, forcing a complete NYSE shutdown.
Even today, uncertainties about the virus trajectory continue to affect long-term economic planning and augment volatility in financial markets. Traders need to keep an open mind and while seeking better trading instruments and avenues to profitability, surely the world at large and not traders alone must adjust to the new normal. Traditional financial tools and mechanisms are hardly suitable anymore, given that world governments have already poured tens if not hundreds of trillion of dollars into the world economy via various subsidies.
Notable trends:
El Salvador on Bitcoin:
El Salvador’s monthly incoming remittances are larger than its exports and amount to 20% of its GDP. Originating mostly from unbanked overseas Salvadoreans to their equally unbanked families at home, remittances are subject to large transaction fees often in excess of 5%.
The government of Salvador has decided to adopt Bitcoin as legal and optional tender, inspired by an earlier local Bitcoin adoption success in the beach city of El Zonte. The decision is expected to grant access to financial services to 70% of the unbanked. International crypto transfers are both cheaper than traditional currency transfers.
El Salvador has purchased 135M worth of Bitcoin and will distribute $30 worth of it to each Salvadorean, in a Bitcoin wallet. The government also has detailed plans for solar-power Bitcoin mining.
E-CNY’s Exceptional Growth:
In another widely watched experiment, China’s e-CNY, likely the most advanced central bank digital currency (CBDC), is being tested domestic in retail payment trials. Moreover, cross-border e-commerce could very well become its next use case according to Tu Yonghong, deputy director of the International Monetary Institute (IMI) at the Renmin University of China as the currency is “technically ready” to facilitate cross-border transactions.
With the intent to help reduce exchange rate risks for Chinese firms and reduce trade transaction costs as well as improve the funding efficiency of Chinese financial institutions the internationalizing of the People’s Bank of China (PBOC) has recently confirmed its intent to launch pilot programs for e-CNY cross-border payments. Its putative success will help Cvhian reduce its dependency on the US dollar as both transitional and reserve currency; the e-CNY has the potential to help the RMB reach the status of the world’s third widely circulated currency.
Last words:
The world is still in the turmoil of the pandemic. While some observe, some take actions to adapt. In this fluid and dynamic business world, it is vital to know what is shaping the world. As experienced Swiss cross-border payments and lending financial intermediary operating out of Geneva, we follow the trends of the business world and give the best advice to our customers based on the knowledge we know. Reach out to us and we can start from there.
Citations:
Central Reserve Bank of El Salvador. (2021). El Salvador Remittances1990-2021 Data: 2022-2023 Forecast: Historical: Chart. Retrieved August 24, 2021, from https://tradingeconomics.com/el-salvador/remittances
International Monetary Fund. (2021). Policy responses to covid19. Retrieved August 24, 2021, from https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19
Szmigiera. (2021, August 3). Impact of the coronavirus pandemic on the global economy – Statistics & Facts. Retrieved August 24, 2021, from https://www.statista.com/topics/6139/covid-19-impact-on-the-global-economy/#topicHeader__wrapper
